Berger, Klaus Peter/Behn, Daniel, Force Majeure and Hardship in the Age of Corona: A Historical and Comparative Study (April 20, 2020), 6 McGill Journal of Dispute Resolution (2019/2020) Number 4, pages 79-130

History & Modern Evolution of Transnational Commercial Law

Document-Id: 100105, Please cite as: "https://www.trans-lex.org/100105"

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For full text see: https://mjdr-rrdm.ca/articles/volume-6/force-majeure-and-hardship-in-the-age-of-corona/

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All combined, the transnational rules and the practice of international long-term contracting have led to the general understanding that the force majeure excuse for non-performance as a transnational doctrine and as a contractual clause is based on the following four cumulative requirements:168
• Externality: The occurrence of an external event169 for which the obligor has not assumed the risk;
• Unavoidability/Irresistibility: The occurrence of the external event170 was beyond the obligor’s (typical) sphere of control/the ordinary organization of his business171 and was absolute;172
• Unforeseeability: The event and its consequences, i.e. the adverse impact on the obligor’s ability to perform, could not reasonably have been avoided or overcome by the obligor, e.g. by alternative and commercially reasonable (measured against 110 the risk-distribution in the contract) modes of performance, procurement or transportation, or other safety measures;173
• Causation (“conditio sine qua non” or “but-for” test): The obligor’s non-performance was, as a “matter of commercial reality”,174 caused by the external event and not by the obligor’s own fault, e.g. by self-inflicted production problems, defective goods or packaging etc.

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As a consequence of this restrictive approach, the wording of the actual hardship provision in the UPICC reveals its narrow character. It is not concerned with the broad notion of the “foundation of the transaction” or similar concepts of domestic law, such as in Germany. Rather, its sole purpose is to restore the lost economic equilibrium of a valid contract whose continuing performance would threaten one side with an overwhelming loss. Within the UPICC, hardship is defined in Art. 6.2.2, which provides:

There is hardship where the occurrence of events fundamentally alters the equilibrium of the contract either because the cost of a party’s performance has increased or because the value of the performance a party receives has diminished, and(a) the events occur or become known to the disadvantaged party after the conclusion of the contract; (b) the events could not reasonably have been taken into account by the disadvantaged party at the time of the conclusion of the contract; (c) the events are beyond the control of the disadvantaged party; and (d) the risk of the events was not assumed by the disadvantaged party.282

This definition shows two things. First, the requirements of hardship are very similar to those of the force majeure doctrine:283 occurrence of an event, of whatever nature, after contract conclusion for which the obligor has not assumed the risk, unforeseeability, unavoidability and the causing by the event of an economic disequilibrium in the contract.284 Second, this 128
economic disequilibrium must be “fundamental”. The mere increase in cost of performance never suffices. The event must have placed an excessive burden on the aggrieved party, rendering performance substantially more onerous, whether due to a fundamental increase in costs or a diminished value of the performance of the other side. Whether there is such a fundamental economic imbalance cannot be determined by simply referring to abstract figures like an increase in costs of 100 or 200 percent as compared to the initial contractual cost calculations.285 That question can only be answered against the circumstances of each individual case, including the nature of the contract, its subject matter and the conditions of the market in which that contract was concluded.286

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168Brunner, “Force Majeure and Hardship”, supra note 31 at 111—12; Brunner, “Rules on Force Majeure”, supra note 18 at 85; Nassar, supra note 51 at 207ff; Stephan Schmitz, Allgemeine Rechtsgrundsätze in der Rechtsprechung des Iran-United States Claims Tribunal, Eine Untersuchung über das anwendbare Recht, nachträgliche Leistungshindernisse und Entlastungsgründe sowie ungerechtfertigte Bereicherung (Frankfurt am Main: Peter Lang, 1992) at 146ff; TransLex-Principle VI 3, supra note 66 at VI 3 (a); ICC Case No 2142, 1974, 1 YB Comm Arb 132 (1976); ICC Case No 3880, 1983, 10 YB Comm Arb 44 (1985); ICC Case No 5864, 1989, 124 JDI (Clunet) 1073 (1997) at 1076 [ICC Case No 5864]; ICC Case No 8501, 1996, 128 JDI (Clunet) 1164 (2001) at 1166; ICC Case No 2216, 1974, 102 JDI (Clunet) 917 (1975) at 919; Michael Polkinghorne & Charles Rosenberg, “Expecting the Unexpected: The Force Majeure Clause” (2015) 16 Bus L Intl 49 at 57; ICC Force Majeure and Hardship Clauses March 2020, ICC Force Majeure Clause (“Long Form”). International Chamber of Commerce “ICC Force Majeure and Hardship Clause” (March 2020) at art 1, online (pdf): ICC [ICC, “Force Majeure and Hardship Clause”].
169See the list of typical force majeure events in Translex Principle VI 3, supra note 66 at VI 3 (c); see also Gujarat State Petroleum, supra note 80; Klaus Peter Berger, “Force Majeure Clauses and their Relationship with the Applicable Law, General Principles of Law and Trade Usages” in Fabio Bortolotti & Dorothy Ufot, eds, Hardship and Force Majeure in International Commercial Contracts (Alphen upon Rhine: Kluwer Law International, 2018) 137 at 144 [Berger, “Force Majeure Clauses”].
170Pascal Pichonnaz, “Ch 7 Non-performance, s1: Non-performance in general, Art 7.1.7” in Stefan Vogenauer, ed, Commentary on the UNIDROIT Principles of International Commercial Contracts, 2nd ed (Oxford: Oxford University Press, 2015) 864 at para 22 (events which are external to the obligor’s sphere of risk are usually also unavoidable) [Pichonnaz, “Art 7.1.7”].
171See e.g. Ad Hoc-Award of September 9, 1983, 12 YB Comm Arb 63 (1987) at 74 (stating that a state enterprise which is integrated into the state economic plan may not invoke a change of that plan as a force majeure event).
172CAP Case No 3150, supra note 166 at 72.
173Pichonnaz, “Art 7.1.7”, supra note 170: (“[i]f a diligent merchant is expected to take alternative measures in the obligor’s place, these have to be taken; even a substantial loss due to additional costs should not be enough to justify the absence of alternative measures” at para 26).
174Alan Berg, “The detailed drafting of a force majeure clause”, in Ewan McKendrick, ed, Force majeure and frustration of contract (London: Lloyd’s of London Press, 1995) 63 at 71.
282UNIDROIT Principles of International Commercial Contracts 2016, Art. 6.2.2.
283See Section 4.3, above.
284ICC, “Force Majeure and Hardship Clause”, supra note 168 at art 2; Yildirim, supra note 36 at 86.
285The figure of 50 percent in the official Comment to Art 6.2.2 UPICC was deleted in the 2004 edition; see Yildirim, supra note 36 at 100ff.
286McKendrick, supra note 279 at Art 6.2.2, para 9.

Referring Principles

Trans-Lex Principle: VI.3 - Force majeure

Trans-Lex Principle: VIII.1 - Hardship: Requirements

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